Apple’s App Store for its iPhone and other iOS devices is an unqualified success, blowing through the 10 billion downloads mark in January. Seeing the store grow from 500 apps to more than 400,000 in just three years, Apple decided to take the app store concept to the Mac this year, with its App Store feature in Mac OS X 10.6.6. That new sales venue is off to a fast start, with 1 million downloads in the first day. Although Apple has not released sales numbers for the Mac App Store, CEO Steve Jobs noted in his iPad 2 announcement that Apple has paid a total of $2 billion to developers across both stores. Apple’s 30 percent share of that bounty amounts to a tidy $850 million.

That net income potential hasn’t been lost on Apple’s competitors. In the years since Apple’s 2008 iPhone App Store launch, other mobile OS makers — Google, HP, Microsoft, and Nokia — have launched their own stores. All are reportedly profitable for their operators.

Thus, they’re likely to gain even more prominence. Users, IT, and developers will have to adjust to their increasing role as a distribution mechanism for software. For developers in particular, that could mean significant changes to how they run their software businesses.

Apple rules the app store — but didn’t invent it

It’s easy to forget that Apple didn’t originate the app store concept, even on the iPhone. Although Apple today is the major app store purveyor of desktop apps, the concept is floating among other desktop operating systems. Canonical’s Ubuntu Linux, for example, offers access to various apps directly from its menu bar, so users don’t have to search randomly for software. Google does the same with its Chrome Store for Web apps.

Additionally, Microsoft has been long rumored to be planning an app store for its Windows 8 release. Microsoft last month did launch a special-purpose app store for Office 365, although the venue is limited to 100 Office 365-specific applications and services. Like Apple, Microsoft has a huge captive customer base, with its Windows Live ID well positioned to be a single sign-on point for Microsoft app buyers à la Apple’s iTunes Store. Should Microsoft take this step, the question becomes whether it avoids the issues of Apple’s Mac App Store and instead leapfrogs Apple — or whether Microsoft ends up trailing far behind Apple, as it has with its Windows 7 App Store.

App-store-like centralized software repositories have existed for nearly a decade. In 2002, Linspire’s Michael Robertson created the Click-n-Run software repository GUI, and since then Linux has sported such utilities such as Red Hat Package Manager (RPM) and Advanced Package Tool (APT), mainstays for network-based OS and application installation. Later, stores such as Handango sprung up to sell downloadable apps for the once rapidly growing pocket PC market.

By contrast, Steve Jobs initially eschewed native apps for the iPhone, claiming that Web 2.0 apps, delivered via HTTP, would provide all the functionality mobile users required. But within weeks of Apple’s 2007 iPhone shipping, hackers had unlocked the device and ported Linux’s APT utility as a program named Installer, letting users install native apps directly on the iPhone.

Shortly after, iPhone and open source developer Jay Freeman (aka Saurik) launched the Cydia app installer (and later Cydia Store), another open source tool that ultimately would become a rogue application sales competitor against Apple in 2009. Apple apparently saw the value of native apps and, rather than ceding the ground to jailbreakers, launched the iPhone App Store in July 2008. iPhone app development blossomed, and when Apple shipped the iPad last year, most iPhone apps immediately became available to iPad users.

That success set the stage for the app store concept’s adoption by every major platform vendor, to varying degrees. (As a consequence, Apple has taken the offensive against competitors by trying to trademark the “app store” term.)

The new cost/revenue equation

The primary attraction for developers of Apple’s Mac App Store — the 800-pound gorilla today — is the collection of 200 million Apple ID accounts, complete with credit cards, primed for one-click purchases. The developers of Pixelmater, a $60 image-editing tool, learned this well when it grossed $1 million in just 20 days of Mac App Store exposure.

But to get to this market, developers have to set up a separate payment, download, and update mechanism for each app store. In the case of the Apple store, it also means jumping through a lot of hoops ostensibly meant for quality control.

Developers do set their own prices, and although many apps have iOS-like sub-$10 pricing, quite a few cost hundreds of dollars. However, Apple strongly suggested that the App Store audience deserves a lower-priced product when it dramatically cut the price of its own Apple Remote and Aperture apps in the Mac App Store. Apple also unbundled the $80 iWork package of Keynote, Numbers, and Pages into separate $20 App Store products.

Those lower prices don’t necessarily mean less net revenue for developers. Using the App Store can lower a developer’s delivery costs by a few percent compared to physical product delivery such as in physical retailers or mail-order sales. That can add up to a significant cost component, at least for inexpensive programs. “We take home a bit more from the App Store,” says SmileSoftware founder Greg Scown. “Basically what we see is the App Store replacing the retail box channel, doing so in a broader way than retail ever did, but not replacing the Web channel.”

Apple’s iOS App Store drew a legion of first-time developers, who leapt at the opportunity to focus on development rather than sales. Similar benefits accrue to nascent Mac developers: By letting Apple handle the sales cycle, product delivery, serialization, and DRM, new (to the Mac) developers can shorten the time to market dramatically. However, Apple’s sales processes don’t replace advertising. “The App Store is not a substitute for marketing — you still have to advertise, cultivate communities, and support users,” Scown says.

Apple takes a 30 percent cut of all sales in its app stores. That’s more than conventional e-commerce sales channels such as PayPal and Kagi, or open source digital rights management channels such as AquaticPrime. Although a 30 percent cut is common in the retail box sales channel, in that venue the commission pays for physical product handling and storage space, none of which Apple’s (or others’) app stores incur.

A second downside for developers is Apple’s retention of App Store sales customer data. Apple gives developers daily sales reports and, eventually, cash, but no customer relationship information: no name, email address, or demographic data. But neither do retail box stores. Mac App developers have the option of requesting app registration information upon launch, but nothing prevents a user from entering bogus data. Developers in the IndieGamer.com forum have complained that Apple shouldn’t retain customer information while at the same time taking 30 percent of the price.

The 30 percent sales commission seems disproportional for higher-priced, usually more sophisticated apps. In a TechRadar interview, Rogue Amoeba CEO Paul Kafasis complained, “A developer has to do a lot more work providing more features, more functionality. Apple, on the other hand, does no extra work selling a more expensive application, yet their cut (in raw numbers) gets much larger.” Major app developers such as Adobe and Microsoft seem to agree: None of their line-of-business products has moved to the Mac App Store in the five months it’s been operating.

Although the days of boxed software seem numbered, a two-tiered approach to online sales is likely to continue for some time. First, Mac developers aren’t locked into the Mac App Store for delivery (as iOS developers are). “Some of our customers opt for the convenience of the app store installation model, but others prefer to purchase from us directly for various licensing and packaging options — family packs, user group pricing, etc. And for users who want the bleeding edge, our app updates go to direct purchasers immediately, but Apple takes a week or so to review App Store updates,” says SmileSoftware’s Scown.

The Mac App Store has a few quirks as well. First, it can’t be used to update an existing pre-App Store version of, for example, Apple’s Aperture. Although the store “sees” the application as installed, it won’t update it. And, at least today, Apple is blocking developers from charging outside an app for subscription services, such as software maintenance, database access, and content feeds.

The reality of working in closed app store environment

Apple’s iOS and Mac app stores are famous for imposing restrictive requirements on developers. That’s particularly true in Apple’s iOS App Store, which is a closed sales venue. Apple determines which apps qualify for entry, and when it deems they do not, summarily rejects them, often without providing clear reasons. Sometimes the reason for rejection is technical, such as an app that violates platform security. But other times the motive is market-oriented, such as Apple’s prohibition of Flash video, interpreted code, “objectionable” content, and apps that duplicate Apple product functionality.

Apple has taken a lighter approach with its Mac App Store, both because Mac apps have other sales venues — brick-and-mortar and Web stores — and because Apple doesn’t have the same need to control the user experience. In the case of iOS, Apple feared — with some justification — that runaway apps could slow the iPhone and interfere with other apps, as well as create security vulnerabilities. Apple doesn’t face that problem with desktop apps, which can take advantage of Macs’ much higher CPU, memory, storage, and bandwidth resources, and of Mac OS X’s well-established security model through the administrator account.

Existing Mac OS developers appear to find porting their apps to the Mac App Store reasonably straightforward. SmileSoftware’s Scown notes that Apple required some changes to its TextExpander and PDFpen apps, but most of the changes were geared toward reliable operation. “Apple did a pretty good job of laying out ‘these are the rules.’ It did require modifications to the apps, such as eliminating unpublished calls, which are mostly good things. Apple forces developers to go back and use the correct methods in these cases.”

But developers with existing Mac apps may find that their software doesn’t operate within the Mac App Store guidelines, despite having a reliable track record with Mac OS X. For example, “our TextExpander requires that the user turn on Access for Assistive Devices, with requires administrative account login. But Apple’s guidelines say apps can’t require users to make administrative mode changes. Apple asked why we needed that capability, and we explained that it is critical to the app functionality. So it permitted it.”

Apple’s capriciousness in the Mac App Store has many in the developer community up in arms, calling for an alternative open source store free from Apple’s control. But is an open app store remotely possible? Certainly, says Cydia’s Freeman. An open app store contender could make a difference by offering more liberal terms: lower commissions, fewer content and architectural restrictions, and shared ownership of the customer. “With a desktop OS such as Mac OS or Windows, we [open source developers] have the chance to do things right. There are no barriers to third-party Mac app stores, none at all,” he says.

“There is a concern that the platform maintainers, such as Apple, will attempt to gradually lock the system down to a single application sales channel, as there is on the iPhone today [for nonjailbroken iPhones], and [developers want] sales models that give more access to metrics and customer relationships for subscriptions, upgrades, and incremental changes,” Freeman says.

An open Mac app store would also address the open source conflict inherent in Apple’s offering, by freely welcoming applications consisting of, or based on, open source software. GPLv2, a very popular open source license, and Apple’s Mac App Store license are incompatible, according to Apple. The Mac App Store’s terms of service restrict certain usages, while GPLv2 expressly prohibits use restrictions, an impasse that currently bars GPLv2 and most other open-source-licensed programs from the Mac App Store.

Despite Apple’s tight grip on customer data and heavy commission hit, the Mac App Store is seeing steady growth, and app makers expect that growth to accelerate as more Mac users upgrade their to add the App Store capability. “We’re looking forward to Mac App Store growth,” says SmileSoftware’s Scown, “since there are millions of users pending upgrade to 10.6.6. As they update to that or Lion, that expands our audience.”

Given Apple’s Mac App Store success, and the willingness of developers to endure moderate hardships, can Microsoft be far behind? It will be a different application world, and not just on Apple’s platforms. (Source: Java World)